Funding key to Palmer’s Yabulu deal

BHP Billiton
’s corporate division was said to be “hell bent" on closing the Yabulu nickel refinery in 2009, but faced a $400 million bill for remediation work on a tailings dam and retrenchment payouts for 800 employees, the NSW Supreme Court heard on Wednesday.

In the face of such a payout, any price offered for the refinery was valuable, John Sheahan, SC, told the court, and BHP had insisted on a deposit of “at least $5 million".

But the only remaining bidder for Yabulu, Gladstone Pacific Nickel, had not been able to secure financing and BHP indicated in June 2009 it preferred to deal directly with GPN’s major shareholder,
Clive Palmer
, said Mr Sheahan, who represents GPN.

“Price was not the key for BHP, it was confidence in the funding," Mr Sheahan said.

After Mr Palmer bought the refinery in July 2009, it went on to report a profit of $1.1 billion for the 2010 financial year.

Robert Pearce, who founded GPN and now holds a 16 per cent stake, is applying to the court for standing to mount a $500 million challenge to Mr Palmer over the Yabulu deal. GPN, which is 56 per cent owned by Mr Palmer, opposes the application.

James Stevenson, SC, for Mr Pearce, told the court that Mr Palmer, as a director negotiating for GPN to buy Yabulu, had gained valuable confidential information that he used in making his own bid after BHP ended talks with GPN.

But Mr Sheahan said Mr Palmer gained information as a potential funder for GPN’s bid for Yabulu, not as a director. In April 2009, Mr Palmer wrote a letter of support for GPN’s bid.

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Mr Sheahan said Mr Palmer’s “active and personal financial support" was critical for GPN’s bid for Yabulu. “But Mr Palmer was obliged at no time to provide such support," he said.

“Mr Palmer was a director for a very short period of time," Mr Sheahan said, from April 21, 2009 until June 2, and he had previously been approached by BHP in late 2008 to buy Yabulu.

It was only after BHP had expressed its preference to sell to him directly rather than to GPN that he began his own negotiations.

“If this opportunity had come to him in his capacity as a director, it would be a different thing," Mr Sheahan said.

Mr Palmer contests claims he agreed to underwrite a $30 million share issue by GPN.

The court has heard that GPN spent $904,000 conducting due diligence, in the course of which price discussions dropped from a $US200 million up-front payment to an up-front payment of $5 million plus an injection of working capital.

Employees of Mr Palmer’s company, Mineralogy, took part in the due diligence process, which Mr Palmer described as a “cost saving", Mr Stevenson said.